Glossary of Insurance Terms

ACCIDENT

An event causing loss, which occurs without being expected or designed, usually specific in time and place.

ACTUAL CASH VALUE (ACV)

The cost of replacing or restoring property at prices prevailing at the time and place of the loss, less depreciation, however caused. Another definition: the sum of money required to replace property less depreciation, which includes physical wear and tear, and obsolescence.

ACTUARY

A person whose principal function is to make the technical calculations required for the pricing of insurance policies.

ADDITIONAL EXTENDED COVERAGE

A second endorsement on the fire policy (fire and lightning with extended coverage) which insures the dwelling and/ or contents against water damage from plumbing, etc.; boiler explosion; glass breakage; and damage by ice and snow, freezing, fall of trees, collapse, vandalism, vehicles owned by insured or tenants and landslide.

ADDITIONAL INSURED

One who is protected by an insurance policy other than the named insured. Examples: In automobile insurance, one who drives the insured's car with his consent ordinarily is protected. In property insurance, this might be a co-owner, mortgagee, or lien holder.

ADJUSTER

A person who investigates and settles losses for an insurance carrier or the insured.

ADVANCE PREMIUM

Most companies give the insured the right of making premium payments in advance.

APPRAISAL

Determination of the value of property or the extent of damage by impartial experts. Many property insurance policies provide for "appraisals" where the company and the insured cannot agree on the amount or the extent of a loss.

ARSON

The willful and malicious burning of property, sometimes with the intent of defrauding an insurance company.

ASSETS

All of the property owned by a carrier.

ASSIGNEE

One to whom the legal ownership of a policy or a limited interest therein is transferred.

ASSIGNMENT

The partial or complete transfer by a person of his right or interest in a policy to another person. The ability of a person to so assign the policy may be limited by law or individual circumstances. An assignment must be written, signed by the owner-policyholder whose interest is being transferred, properly attested, and the original or a certified copy must be filed with the insuring company. A valid assignment so filed is binding on the company.

BINDER

A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.

BODILY INJURY BENEFIT COVERAGE

This automobile coverage is designed to protect the insured and any passengers in his car against loss by reason of bodily injury or death caused by the owner or operator of an uninsured automobile (or a "hit-and-run"). Also called uninsured motorist coverage.

BODILY INJURY COVERAGE

This coverage, often called "public liability insurance," protects an insured against legal liability for injury to the person of another arising from an accident.

CANCELABLE POLICY

A policy which may be cancelled by the company at any time by giving advance notice to the insured and refunding any unearned premium.

CANCELLATION

The discontinuance of an insurance policy before its normal expiration date.

CARRIER

The insurance company or the one who agrees to pay the losses. The carrier may be organized as a company, either stock, mutual, or reciprocal, or as an association of underwriters such as Lloyds.

CASUALTY INSURANCE

A general class of insurance covering liability resulting from accidents and some types of property insurance. It includes among other coverages: automobile, workers compensation, employers liability, general liability, plate glass, theft and personal liability. It excludes life, fire and marine insurance, but, as ordinarily used, includes health insurance and fidelity and surety bonds.

CATASTROPHE REINSURANCE

This is a form of insurance written on an excess of loss basis in order to improve the spread of risk against unknown concentrations of liability subject to one occurrence. A deductible is chosen at the amount necessary to reduce the probable frequency of loss to an acceptable level to the reinsurer, and severity of loss to a level acceptable to the reinsured company.

CHARTERED PROPERTY AND CASUALTY UNDERWRITER (C.P.C.U.)

A designation conferred in recognition of the attainment of certain standards of education and proficiency in property and casualty insurance underwriting.

CLAIM

A request for payment of a loss which may come under the terms of an insurance contract. There are two types of claims. First-party claim is one made by the policyholder in which the policyholder reports the claim directly to his company. A third-party claim is one in which a person makes a claim against a policyholder of another company and payment, if any, is made by that company.

CLAIMANT

One who makes a claim.

CLAIM FREQUENCY

The number of claims of a given coverage reported to an insurance company divided by the number of policies in force for car having the given coverage. It is usually expressed as the number of claim coverages reported per 100 of such coverages in force. Example: For bodily injury (BI), the frequency of 2.50 means that bodily injury accidents were reported at the rate of 2'/2 per year for each one hundred BI policies in force.

CLAIM SEVERITY

The average cost per claim considering all claims under a certain coverage for a specified period.

CLAIMS-MADE COVERAGE

Claims-made insurance is a type of liability protection that covers current legal obligations result for acts of the insured. It provides coverage to the insured for claims reported during the term of the policy.

COMMERCIAL FIRE

This coverage insures all property not occupied as a residence, excluding farming and manufacturing, against loss by fire.

COMPULSORY INSURANCE

The purpose of compulsory insurance laws is to require all residents to buy liability insurance before auto license plates are issued. The law requires proof of financial responsibility (insurance) when license plates are issued.

CONCEALMENT

The withholding of material facts from an insurer, either in applying for a policy or making a claim.

CONTENTS

A term used to refer to the personal property contained in a building. It may be household furniture, personal effects or other types of personal property, movable in nature and not firmly affixed to the real property.

CONTRIBUTORY NEGLIGENCE

Carelessness of the injured person that helped to cause the accident in which he was injured.

DAMAGES

In a technical sense, damages refers to the money or compensation recoverable in a lawsuit by a party who has been injured in person or property or rights by the negligence of another.

DEDUCTIBLE

A provision in an insurance contract stating that the insurer will pay only the amount of any loss that is in excess of a specified amount. The specified amount is the deductible.

DEDUCTIBLE COLLISION COVERAGE

A form of collision coverage which specifies that an insurance carrier will pay the damage less a specified amount. For example: For $50 deductible collision coverage, the insurance carrier would deduct $50 from the total damage and be liable for only the amount in excess of $50.

DEPRECIATION

A decrease in the value of property over a period of time due to wear and tear or obsolescence. Depreciation is used to determine the actual cash value of property at time of loss. (See ACTUAL CASH VALUE.)

DIRECT LOSS

A loss where an insured peril is the proximate cause. If a windstorm blows the roof off a home, the windstorm is the insured peril causing the direct loss or damage. (See PROXIMATE CAUSE.)

DIRECT WRITER

The industry term for a company which uses it own sales employees to write its policies. Sometimes refers to companies which contract with exclusive agents.

DOMESTIC CARRIER

An insurance company organized in a given state is referred to in that state as a domestic carrier.

ENDORSEMENTS

An additional piece of paper, not a part of the original contract, which cites certain terms and which, when attached to the original contract, becomes a legal part of that contract. Additions to life insurance contracts are accomplished through the use of riders, which are similar to endorsements.

EXPENSE RATIO

The ratio of a company's operating expenses to premiums.

EXPIRATION DATE

The specified date and time at which the policy terminates.

EXPOSURE

This term in the insurance field may have several meanings: (1) possibility of loss; (2) a loss potential as measured by type of construction, area or values; (3) a possibility of a loss being communicated to an insurance risk from its surroundings.

FAMILY AUTO INSURANCE

The automobile policy (most common in the industry) which provides protection for all members of the family.

FIRE

Court decisions have held generally that there are three elements which constitute a fire within the meaning of an insurance policy: (1) Rapid oxidation (combustion). (2) Visible flame or glow. (3) Hostile or unfriendly. (A "hostile" fire is one which escapes the area in which it was intended to burn. A "friendly" fire is one which does not exceed its intended purpose.)

FULL COVERAGE

Insurance which covers all losses, with no deductions, up to the amount of the insurance. (See DEDUCTIBLE COLLISION COVERAGE.)

GENERAL LIABILITY

A broad term meaning liability insurance, other than automobile written to cover personal, professional and commercial risks. As respects commercial liability, it includes the following hazards and coverages: premises and operations, elevators, independent contractors, contractual products and completed operations.

IMPROVEMENTS AND BETTERMENTS INSURANCE

Insurance coverage that protects a tenant against loss of improvements made by him to real property in which he is a tenant as a result of fire, etc. Some property policies use the term "improvements and additions" in describing the coverage.

INDEMNITY

In general, reimbursement for loss, but also a benefit provided by a policy. In health insurance it sometimes is used to designate a specified amount paid regardless of actual loss or expense incurred.

INSPECTION REPORT

Filed by an investigator employed by the insurance company or credit agency, giving general information on the health, habits, finances and reputation of the applicant.

INSURED

A person covered by an insurance policy. In life insurance, the person upon whose life an insurance policy is issued.

INSURED NAMED

The person with whom an insurance contract is made, and who is named specifically for protection against loss under the terms of the policy. Any person or corporation, or any member thereof, such as the spouse of the specifically mentioned as named insured in a policy, as distinguished from others who, though unnamed, are protected under some circumstances. (The most common application of this principle is in connection with the "omnibus clause" in automobile liability policies.)

JOINT TENANCY

Ownership of property by two or more in such a way that when one of the joint owners dies, his share goes to the surviving joint owners rather than the heirs.

LEVEL PREMIUM INSURANCE

Insurance for which the cost is distributed evenly over the period during which premiums are paid. The premium remains the same from year to year, and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years. The excess paid in the early years builds up the reserve.

LIABILITIES

An insurance company's liabilities consist of its immediate or contingent policy obligations and unpaid claims.

LOSS RATIO

The percent which losses bear to premiums for a given period.

LOSS RESERVE

The amount set up as the estimated cost of an accident at the time the first notice is received.

MATERIAL DAMAGE

Insurance against damage to a vehicle itself. It includes automobile comprehensive, collision, fire and theft. Material damage and physical damage are terms that often are used interchangeably.

MATURITY VALUE

The proceeds are payable on maturity of a policy. An ordinary life policy matures on the death of the insured and an endowment policy on a specified date or on the prior death of the insured. The maturity value is normally the "face amount" of the policy.

MULTIPLE LINE

A general term referring to fire and casualty insurance in general. A multiple line company writes auto, fire, health, commercial, boat owners, homeowners, individual fire and theft insurance.

MUTUAL INSURANCE COMPANIES

Insurance companies without capital stock, owned by the policyholders for the purpose of sharing in the profits through dividends at the end of the policy year.

OCCUPANCY

This refers to the use of property. A home, for example, may have a real estate office in it. This dwelling would then have a "business occupancy." Occupancy plays a very important part in computing rates and determining the acceptance or rejection of risks.

OCCUPATIONAL HAZARD

The danger of suffering a sickness or injury due to the hazards of an occupation.

OCCURRENCE

Any incident or happening. Usually used by insurance carriers in connection with accidents involving the policyholders. The word ""occurrence" is used because of the precise legal meaning of the word "accident," which an "occurrence" may or may not be.

OCCURRENCE COVERAGE

Occurrence coverage is insurance for incidents of liability alleged to have occurred during the term of the policy, no matter when the claim is reported.

OMNIBUS CLAUSE

An automobile policy provision which covers persons driving the named insured's auto with the named insured's permission.

PARTIAL DISABILITY

An injury which prevents the insured from performing one or more, but not all, important duties of his job.

PERIL

The cause of possible loss, such as fire, windstorm, theft, explosion, or riot.

PERSISTENCY

A term used to refer to the length of time insurance remains continuously in force.

PERSONAL PROPERTY

This type of property is usually movable and easily transportable. On the other hand, real property generally is considered to be immovable such as land and things affixed to it. A rule-of-thumb definition for personal property is "everything other than real property."

PHYSICAL HAZARD

This refers to the material, structural or operational features of the risk itself, apart from the persons owning or managing it. Electrical wiring, building construction, and type of heating system are examples of physical hazards.

POLICIES-IN-FORCE

Policies written and recorded on the books of the carrier which are unexpired as of a given date.

POLICYHOLDER

One who owns an insurance policy. A mortgagee often is issued a copy of an insurance policy, or a certificate of insurance, at the request of the insured, but he is not a policyholder.

PRELIMINARY CLAIM NOTICE

Notice to the company that the insured wants to make a claim.

PROCEEDS

The net amount of money payable by the company at the death of an insured or at the maturity of a policy.

PROPERTY DAMAGE COVERAGE

An agreement by an insurance carrier to protect an insured against legal liability for damage by his automobile to the property of another.

PROXIMATE CAUSE

The dominating cause of loss or damage; an unbroken chain of events between the occurrence of an insured peril and damage to property. As an illustration, water damage occurring from fire fighting activities is covered under the fire policy because fire was the proximate cause of the loss.

RATING TERRITORY

A geographical grouping in which like hazards tend to equalize and permit the establishment of an equitable rate for the territory.

REINSURANCE

The insurance by one insurer of liability or another insurance carrier under its insurance or reinsurance policies.

REPLACEMENT COST

The cost to repair or replace property at construction costs prevailing at time of loss; the cost to repair or rebuild property without considering depreciation. (See ACTUAL CASH VALUE.)

RIDER

Endorsement. Special provision added to an original policy contract.

RISK

Chance of loss with respect to person, liability, or the property of the insured. Also used to mean "the insured."

SALVAGE

Recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.

SCHEDULE

A list describing the property or items insured under the policy.

SPECIAL CLASS

Policies on which an extra premium rate is charged because an extra risk is presented.

STANDARD PROVISIONS

Policy provisions required by law or supervisory regulation - such as provisions relating to grace period and incontestability.

STANDARD RISK

A person who, according to a life company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

TERMINATION

The recording of a cancellation of an insurance policy. In some instances, cancellations may not be recorded for many weeks, due to the pressure of other work. Many policies cancelled for non-payment are reinstated without either cancellation or being recorded. (See also CANCELLATION.)

TOTAL DISABILITY

Disability which prevents a person from performing (a) any of his occupational duties, or (b) any duties of any occupation, or (c) any duties for which he is reasonably qualified. Definitions vary within policies.

TWISTING

The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policyholder in one company to lapse, forfeit or surrender his insurance for the purpose of taking out a policy in another company.

UNDERWRITER

Originally meant an individual who, together with other individuals, assumed a proportionate part of the risk, the signatures of all such individual insurers being written under the basic promise to pay. In effect, this is still the insurance principle under marine and certain general types of insurance. In the life insurance industry, "underwriter" has three different possible meanings: 1. An insurer. 2. An officer, medical adviser or technician who reviews applications for insurance, selects risks for acceptance, and determines the amount and the terms of such acceptance. 3. An agent or other field representative who unavoidably "selects risks" when selecting his prospects for solicitation.

UNDERWRITING PROFIT AND LOSS

The profit or loss experienced after deducting from earned premiums the incurred losses and expenses of doing business, but before provision for federal income tax. It excludes investment transactions.

UNREPORTED CLAIMS

Accidents which have occurred but which have not been reported or recorded.

VALUATION

The process of determining a company's liabilities under its policy obligations is known as policy valuation. The process of determining the value of a company's investments is known as asset valuation. Minimum valuation standards are usually prescribed by state law.